Avoid The Killer Curve: Maintain Business Momentum

It happens to smaller businesses, too. For example, a competent, well-connected credit manager formed a collection company. From the moment the doors opened, the firm was a runaway success. For four years, there was continual growth. More employees were added, and the office space doubled. Then things slowed, and some months later there was an actual plateau. Finally volume began to slide. 'I couldn't figure out what was going on,' said the president. 'Everything was so good for so long. Every month set a new record. Then it all began to change.'

At first, the owner thought it was a minor glitch on the screen. 'We had been doing so well, I thought we were just slowing down a bit.' When the downward slide continued, he called in a marketing consultant.

The analysis revealed that the success of the business was due mainly to the owner's excellent networking over many years as a credit and collections manager for a large company. His contacts fueled his success, but the fabric began to unravel as some of these helpful associates took new jobs and their replacements used vendors they knew. Others retired, a number of businesses merged, and several excellent accounts closed their doors.

What happened was clear: The collection company ran out of what can be called 'goodwill capital.' It used up its long-time relationships. Once those relationships were gone, the company was 'bankrupt' and didn't know it.

The marketing consultant also discovered that because of the immediate influx of business at the beginning and quick growth, the company had never marketed itself. 'Frankly, we didn't even think about it,' said the president. 'Besides, we didn't need it. We had more business than we could handle for a long time.'

An insurance group had a slightly different scenario, but the results were the same. The company formed to supply products and services to its members. Within a short time, it recruited a substantial number of agencies around the country and became profitable. Then the new-member supply line dried up. Even though the group's offerings to its members were considered outstanding, recruiting slowed to a halt. As hard as management tried, few new participants signed on.

A networking firm's experience was quite different. It took nearly 20 years for their sales to hit the wall. After years of growth, sales slowed and then almost stopped over a 12-month period. In spite of glowing customer satisfaction reports, new customers were few and far between. 'I've tried to stand back and assess what happened,' reported the CEO. 'I can't figure it out.'

While the insurance group and the networking firm are different, both companies experienced particulars of the collection firm's scenario. The insurance agency buying group was composed of members of the same trade association who weren't part of other buying groups. Once the unaffiliated members were tapped out, sales stopped. The networking company enjoyed a long run, nearly two decades, before the sales lagged. First they slowed, then they leveled off and finally began to decline.

Like the collection company, neither the insurance agency group nor the networking company felt a need for marketing in terms of differentiating themselves from the competition and building a brand image. All three firmly believed they were good at what they did. As the chairman of the insurance agency group said, 'No one comes close to what we can offer our members.'

All of these companies experienced a predictable phenomenon: the killer curve. In most cases it appears to be a bell curve. There's a period of growth - sometimes slow, in many cases quite rapid - that's generally driven by goodwill capital. This is followed by slower growth that's often 'explained' by changes in the market, the entrance of new competitors, or both. 'We had done so well so fast,' reported the collection company CEO, 'we just thought [slowing growth] was a temporary situation.' So did the owner of the networking company. The phase of slowing growth is followed by sales stagnation, a time when business plateaus.

Finally, the curve turns downward in terms of sales or profitability. Once decline sets in, it's often difficult for companies to take the steps necessary to solve the problems, mainly because they have difficulty identifying them.

A number of relevant implications can be learned from the killer curve scenario. Here are several possibilities:

• In itself, entrepreneurial drive isn't enough to sustain a business. Only recently has corporate America discovered the value of entrepreneurship and is now encouraging it. But in the cases described here, the drive, talent, and experience required to start an enterprise wasn't enough to keep it going. This is often pointed out, but entrepreneurs may believe themselves to be the exception to the rule.
• There's a tendency to be seduced by the 'growth.' Without an understanding of what is fueling sales, there's a tendency to believe that the 'magic formula' has been discovered. Even the AOLs of the world realize that free Internet access is here. Preoccupation with growth can mask what lies ahead. There seems to be a failure to recognize what drives initial growth, whether it's goodwill capital earned by company founders, a relationship with a particular manufacturer, or partnering with an organization that feeds sales.
• Short-term thinking becomes long-term strategy. An organization with more than $300 million in cash to acquire certain regional companies across the United States was so focused on making sales that it failed to develop a strategy for integrating the various units. The short term was so appealing and exciting that management neglected the next phase.
• There's no marketing strategy. In each of our case histories, there was no marketing plan. More precisely, there was a lack of understanding of the role of marketing. The entrepreneurial attitude seemed to dominate the organizations to the extent that their total emphasis was on making sales. There was no recognition of a need to create a brand identity to differentiate the company and establish in the customer's mind the benefits of doing business with it. This appears to be the blind spot.
• A failure to factor in change. In the early 1980s, the largest typewriter service company in the Northeast held service contracts on 25,000 machines. Rather than seeing itself as being in the service business, the company had built its identity on typewriters. Attempts to transition into other office machines failed because the customers' picture of the company was indelible. Amazon.com avoided becoming equated in the customer's mind with books. It's the company's ability to deliver extraordinary service that gives it its brand identity. It can sell music, electronic equipment, and just about anything else. It has built change into its identity.

Do some businesses beat the killer curve? Undoubtedly. But why take unnecessary chances? The killer curve is a dramatic factor in both success and failure. Many times a rising growth curve is the right time to sell. Snapple is a good example. As soon as the company was sold to corporate America, sales slumped.

It isn't just start-ups that fall victim to the killer curve. Companies that have been in business for decades can experience its effects, such as:

• Companies that have 'more business than we can handle' sometimes assume the sales curve will go up forever.
• Companies that rely on acquisitions, either of competitors or of salespeople with a book of business, often mask a lack of real sales growth with the infusion of new business.

Is the killer curve inevitable? It is only if marketing is missing from the entrepreneurial plan. Leave marketing out, and chances are the killer will strike.